Is Sprint finally giving up on Nextel? After three years of trying to integrate the iDEN network operator into its business, it looks like it may be throwing in the towel–at least according to the Wall Street Journal.
Of course, the Journal didn’t name its sources, as is often the case in these type of speculative stories. The Journal even stated ”no deal is imminent,” implying Sprint is only discussing the possibility. But the story set off the alarm bells all over the industry, adding it to the growing discourse on Sprint’s fate and the several possible deals it’s just itchin’ to pull the trigger on. Let me enumerate them:
- Sprint is considering selling or spinning off Nextel to recoup some of its original investment and focus on its traditional CDMA business
- Deutsche Telekom is contemplating a bid for Sprint, making it part of its global empire and merging it with the distant fourth U.S. operator T-Mobile
- Sprint is about to resurrect its WiMAX deal with Clearwire with additional funding from Google, Intel and cable companies Comcast, Time Warner and Bright House. (The Journal actually broke more on this today saying the deal could be announced as early as tomorrow… or later)
The hype surrounding Sprint is palpable, and the sheer number of publications digging up their own sources to verify these disparate claims gives them some weight. Some of these stories may turn out to be just wishful thinking or simply feelers planted in the media by the companies themselves to take Wall Street’s temperature. Some of them may turn out to be true. And there are some more likely to be true than others.
The Sprint Clearwire tie-up is at the top of that list. Sprint has made no secret of its quest for partners in its new WiMAX venture, and when the original venture fell apart last year, both companies hinted they could revisit it. The deal would give Sprint cash, a bigger footprint, access to more spectrum and someone to share the blame with if WiMAX fails.
Sprint getting rid of Nextel also makes sense. New CEO Dan Hesse is shaking up the business, looking to focus on Sprint’s core virtues. Running Nextel is obviously not one of them. Selling Nextel will make Sprint look awfully stupid, but keeping it be even more foolish. The operator has been nothing but trouble for Sprint since it acquired it, and it’s shed rather than gained customers. The question is whether they could find a buyer or investor willing to take on the struggling operator. iDEN is dying technology.
Nextel’s problems don’t stop there. It has to retune the iDEN network to new 800 MHz spectrum in accordance with its rebanding agreement with the FCC and public safety agencies. The problem is most of those agencies haven’t left the spectrum Nextel is supposed to occupy, but the FCC is insistent on its demands that Sprint vacate its portion of the band by June 26. Sprint said in an SEC filing the ordeal could cost it as much $3.4 billion in revenue losses. That may be a worse case scenario, but it’s hard to imagine a company or individual investing in a company that may be forced to shut down capacity any week now.
The Journal, however, pegs Nextel’s founder Morgan O’Brien as a likely candidate. He now runs Cyren Call, which tried to find a bidder in the 700 MHz auction for now controversial D-block shared public safety-commercial license. There were no takers. Perhaps O’Brien and Cyren Call may take another shot at a nationwide public safety network, this time not as a consultant, but as an operator. Stranger things have happened.
That leaves us with the possibility of Deutsche Telekom taking over Sprint, presumably a Sprint slimmed-down from its loss Nextel and perhaps a Sprint with a lighter debt load due to a Clearwire deal. Sounds good on paper, but do any of you in the industry really think this can happen? Sure, Sprint has spectrum, which T-Mobile needs. It has customers, which T-Mobile also needs. It even has fiber, which T-Mobile could put to use. But one thing the financial analysts and media always seem to gloss over is technology. T-Mobile and Sprint simply have incompatible networks, and no amount of shoehorning or duct tape is going to make them fit together seamlessly.
It’s not just a matter of scale. Sprint achieved plenty of scale when it bought Nextel–a lot of good that did it. What else you got? Operational “synergies”? Sprint’s still running separate commercials for the Nextel and Sprint brands today. It’s buying equipment from two sets of vendors, and it’s barely just started to get services that cross between the two different networks. There may be some back office, billing and transport savings there, but obviously not enough. Otherwise Sprint wouldn’t be contemplating dumping Nextel. Why would T-Mobile want to repeat Sprint’s mistake with Nextel all over again?